Major banks cut their oil price forecasts

Major global investment banks are cutting their forecasts for oil prices this year and next as supply is expected to remain tight while the outlook for demand growth is weak.

The estimates come amid a decline in crude oil prices that began this spring, with prices last week falling to their lowest level since December 2021 as fears over global economic growth and worries about a possible recession in the U.S. Combined with China's slowing economy, they have hurt the outlook for oil demand. Thus, the price of Brent crude reached a minimum of $68.5 per barrel on September 10, while for the West Texas Intermediate (WTI) variety the minimum was $64.8 per barrel, according to Investing.com data.

On the other hand, monetary policy easing by the Federal Reserve may stimulate the US economy, but this depends, among other things, on the pace and extent of interest rate cuts. "Low interest rates usually reduce the cost of borrowing, which can increase investment, stimulate economic activity and increase demand for oil," says Bogdan Maioreanu, eToro analyst.

• UBS expects Brent crude to average $75 a barrel next year

Analysts at UBS bank cut their oil price estimates, citing a weaker outlook for global demand, driven in particular by a slowdown in the Chinese economy, according to a BOE Report article published earlier this week.

They now estimate an average price of $80 per barrel for Brent in 2024 and $76 for WTI, $4 below previous estimates. For next year, UBS expects Brent crude to average $75 a barrel, the same level expected for 2026, down $5 a barrel from its previous forecast, according to Oilprice.

In the first eight months of this year, Brent fluctuated between an average of $80.1 in January and $89.9 in April, according to Statista data. Yesterday in the second part of the day, the quotation was 72.8 dollars per barrel. For WTI, the oscillation was between 80.1 dollars per barrel in January and 89.9 dollars in April, yesterday the quotation of the American reference was 69.5 dollars per barrel.

"The key risks (nr UBS estimate) would be a recession which in turn would increase the risk of a shift in OPEC+ strategy and a faster resumption of production to regain market share, which may push prices below our range forecast", according to the UBS note, cited by BOE Report.

According to the bank's analysts, in order for the price of oil to rise above 90 dollars per barrel next year, a material impact on the supply would be necessary, resulting from the intensification of geopolitical tensions, according to another article published by BOE Report.

• Macquarie expects Brent to average $80 a barrel for the rest of this year

Analysts at Australian bank Macquarie believe below-expected demand will create a surplus in the oil market over the next five quarters, as they revise down their forecasts for this year, according to Oilprice.

The bank expects Brent to average $80 a barrel for the rest of the year, down $2 from its previous estimate, while WTI is expected to average $75 a barrel, also down $2.

According to analysts, the oil market is on track for a "massive surplus" next year as non-OPEC+ supply increases and demand grows thin. This expected surplus may limit the need for the OPEC+ group to start tempering production cuts, Oilprice writes.

The OPEC+ group, which includes OPEC countries plus Russia and other producers, has implemented a series of output cuts as early as 2022 to support prices, with the best part of the measures set to be in place until the end of 2025. The group was to is set to ease cuts in October, but recently decided to delay that plan by two months in light of falling oil prices, according to Reuters.

• Morgan Stanley estimates an average price of $75 for Brent in all quarters next year

Morgan Stanley is another big Wall Street bank that cut its forecast for Brent crude in the coming quarters, arguing that the global oil market is facing weak demand similar to that seen during recessionary periods, according to an article appeared in Reuters earlier last week.

Analysts at the investment bank argue that rising inventories, tighter refining margins and differences between current and future prices (reflected in futures contracts) are similar to those seen in previous recessions or periods of generally weak demand. These include the years 2007-2008 when the demand decreased massively due to the financial crisis and the year 2020 when the Covid pandemic broke out. There are also parallels with periods of no recession but weak demand and high supply in 2013 and in 1992-1993.

• It is too early to conclude that oil prices are signaling a recession, according to Morgan Stanley

According to the investment bank's team, although the price of oil reflects a substantial deterioration in the balance between demand and supply, it is too early to conclude that the situation indicates the emergence of a recession.

Typically after the summer period, higher seasonal demand tapers off, while supply from both OPEC and non-OPEC sources is likely to re-accelerate in the fourth quarter, leading to a shift in the supply-demand balance. "However, the Organization of the Petroleum Exporting Countries plus allies led by Russia, (OPEC+), is focused on balancing the market, as evidenced by the decision to postpone the production increase, which was supposed to start in October," the analysts added.

The bank cut its fourth-quarter Brent forecast by $5 a barrel to $75, the price level it now expects for all quarters next year. Morgan Stanley had previously forecast Brent to average $78 in the first quarter of 2025, falling steadily throughout the year to $75 a barrel in the fourth quarter. For WTI, analysts' estimate is $70 per barrel in the last quarter of next year.

In terms of production, Morgan Stanley expects the oil market to have a surplus of about one million barrels per day in 2025. "OPEC production growth is a key driver of the surplus we estimate for next year," investment bank analysts say.

• Goldman Sachs expects Brent to average $77 a barrel next year

Goldman Sachs cut its forecast for next year's Brent oil price by $5 a barrel to a range of $70-85 a barrel amid lower Chinese oil demand, higher inventories and rising oil production of shale in the United States, according to Oilprice, which cites Bloomberg.

Thus, Goldman estimates an average of 77 dollars per barrel next year. The investment bank's team also considers a lower oil price scenario, depending on OPEC+ actions and a potential economic downturn.

• US Energy Information Administration predicts Brent oil price to return to above $80 per barrel

The US Energy Information Administration (EIA) also slightly cut its forecast for spot Brent crude in 2024 and 2025, according to its latest short-term energy outlook report in September, Rigzone writes.

The organization's estimates are above those of the banks, namely an average of $84.09 next year, compared to $85.71 in the previous estimate.

In August, Brent spot crude oil averaged $82 per barrel, the eighth consecutive month in which the average was in the $80-$90 per barrel range. "Despite a drop in the price to $73 per barrel on September 6, we expect continued drawdowns from global oil inventories as a result of OPEC+ production cuts to push the price back in this range, relatively quickly," according to EIA.

According to the organization, the recent production disruptions in Libya represent a new source of uncertainty for oil prices in the coming months, along with the possibility of the Gaza conflict spreading to neighboring countries and the possibility that OPEC+ members will delay the tempering of production cuts, which is now scheduled for December this year, writes Rigzone.